A couple countries to avoid

As most of you know, this blog started with a focus on helping social game companies increase their international business, largely reflecting my role at Disney/Playdom leading the EMEA/LATAM/Russia/India team. As my career has evolved, so has the blog, though my strongest passion remains international opportunities in social gaming. Thus, I am really happy to have a chance to blog about an international topic, two emerging market countries where recent developments suggest you should avoid or pull back.

Argentina

Although some of my favorite co-workers have been from Argentina and they have some of the best beef in the world, economic decisions that their government—led by Cristina Fernandez—is making suggest it should not be a priority market. The Fernandez government has taken an anti-business stance for a while, making it difficult to repatriate profits or import products. More recently, the government has increased its hostility to business, especially foreign businesses, best shown by the nationalization of Repsol’s (the Spanish oil company) shares of YPF, the former state-owned Argentine oil company.

As a social game company, you may not care what the Argentine government does, but it has a strong effect on your opportunities in the market. First, the nationalization, coupled with other populist policies is likely to have a strong negative effect on the Argentine economy, dampening or destroying the ability for Argentines to monetize. Even if they do, new currency controls will make it more difficult or even impossible to bring your revenue home.

The other warning is to shy away from investment in Argentine social game companies. Several US game companies have invested in game companies based in Argentina in the last few years, because of the creative capabilities and lower costs. Unfortunately, what the Repsol nationalization shows that no matter how brilliant and successful your investment strategy, you run the risk that you will lose your investment to the government. Just think: What happened if you invested in the next Funzio, only to have the Argentine government decide it is a national asset and force you to take pennies on the dollar for its sale?

I would not, however, totally avoid the market. Some of the most creative game designers I have met are in Argentina (as well as some of the best people in the social game industry). There is no reason to avoid licensing games built in Argentina to publish in other markets or bringing Argentine talent into your company (outside of Argentina). Just be careful what you do within its borders.

India

The other market I would caution you on is India, which really pains me to say. I have always been strongly on the India side in the “India vs. China” debate as to the most promising emerging market. I always felt a democracy would outpace an authoritarian regime over time. I still do, and I am not particularly bullish on China, but I also see signs in India that it should not be one of your priorities.

Recently, Standard & Poors changed its outlook on India’s long-term debt to negative and downgraded its sovereign credit rating. The Indian government precipitated this downgrade by running large budget deficits, ignoring rampant corruption and not taking action to open its markets. Government gridlock has made most observers pessimistic that any improvements will happen (sound familiar, Americans?).

The promise of India as an export market for social games (primarily mobile) has been in the potential of the market, not its current state. Many—myself included—forecast that incomes would raise and coupled with the strong penetration of mobile phones, many Indians (and there are many) would spend money in entertainment, including social games. With all of the negative forces on the Indian economy, however, it will probably take a long time for incomes to rise to the point at which India becomes a significant market for social games.

Like Argentina, India has also recently had some cases when foreign investments were not protected. In February, Indian courts revoked mobile licenses, including huge investments by foreign mobile operators such as Telenor. Thus, for social game companies looking at foreign investments, the added macro-risk to investing in India suggests there are better places to put your money.

There are still opportunities to work with Indian companies. They have some of the strongest engineering and programming talent in the world, and represent a great way to help scale your company quickly. It is just important to structure relationships so they minimize the risk created by the current macro-economic environment.

In conclusion

Despite the issues above, there are still opportunities to work with companies from Argentina and India to build your social game company; just be careful. In terms of looking where to grow your market, though, I suggest you look elsewhere as these two countries are not as attractive as some other options (and I will blog about some of my favorites next week).

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Lloyd Melnick

I am Sr Director on Zynga's social casino, building out the VIP and loyalty programs for Hit It Rich! slots, Zynga Poker, Wizard of Oz slots and our upcoming casino titles. Previously, I was Chief Growth Officer at Spooky Cool (which we sold to Zynga), GM International Publishing at Playdom/Disney and co-Founder and CCO of Merscom (which we sold to Playdom). My passions are customer behavior and analytics.

10 responses to A couple countries to avoid

Hi. we didnt see for long time.
But tell your view for poland. i think its good market for game companies. stock market give money for many companies ,my too. im also starting now social….so i will read your blog

I’m no pro-Argentine government, however there must be a mention here. Repsol’s problem started because we (Argentine people) had to import 100% of Oil derivates because YPF was sending the product outside Argentina. Also, for every dollar they had in stocks, they had 2 of debt. So, once YPF was re-statized they had big numbers in red… so even if they asked for an amount of money, the debt was even bigger than that. In other words, they didn’t lost their investment but got a big debt with Argentina. In order to stop losing money from that company, Argentine government chose to take over it, and take in charge of the debt. So, take in consideration that too, it wasn’t a just because the government wanted it… but because of the huge debt it had with Argentina.

If you look at how the international community and courts have reacted to the situation, their analysis is somewhat different. You can always rationalize a nationalization. The point of my post is your government is much more likely to do that than those in some of the markets I think are more promising right now for social game companies, including some of your neighbors.

I actually love your country and you should not take my article as a reason not to. I have worked with many Argentines and they are wonderful and smart people. Your country also has a very rich and interesting culture. I disagree strongly with your government and think it is following disastrous policies, which is actually sadder given how great your country is.

Hi!, i’m from Argentina and i think that your opinion about this country is shallow and based in who know what kind of information or what kind of interests. I’m not an economy expert, but you should know that an oil company is not a game company, the predatory policies taken by repsol while it was in internacional hands( Spain and other countries), caused stockouts and overpricing in the the oil, the policies of repsol had a negative impact in all the economy of Argentina ( without mentioning the lack of investment and defaults on contracts by repsol ). What i’m trying to mean with that is the fact that a game company can’t ever causes this kind of actions ( nationalization ), a national oil company is an strategic tool for the economy of any country in the world, a game company is not, i don’t understand how you can compare an oil company with a game company, even if you want to call the action taken whith repsol “populism”, do you really think that the people will be happy in the case this goverment arbitrarily decide to nationalize a game company?, what can a national game company can change in the life of the citizen of a country?…

Thanks, Esteban. I appreciate your opinion but disagree. I have a deep background in economics (an undergraduate degree in Political Economy from Johns Hopkins and completed the coursework for a Masters of Economics under Nobel Prize winner James Buchanan) and the policies that Fernandez is pursuing creates a hostile business environment for any foreign company, including game companies. You can argue that the oil industry is different than the game industry, and it is, but the underlying issues are the same. Who is to say that if we invested in an Argentine company that became the next Zynga (with comparable revenue) it would not be considered a national asset and similar policies would then be pursued to keep the profits in the country. Moreover, from the outside, most are looking at the broader policies of the Buenos Aires regime and feel it will lead to awful economic conditions (see Economist article on the effects of the nationalization). But the bottom line is yes, I think that a case could be made to nationalize a game company if it brings in enough money in the short-term to make people happy and a successful social game company does.

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About Lloyd

Sr Director with Zynga's social casino org

I have been a central part of the senior management team (CCO, GM and CGO) at three exits (Merscom/Playdom, Playdom/Disney and Spooky Cool/Zynga) the past 3 years. I am now Sr Director with Zynga's social casino organization, where I lead VIP and CRM efforts for its slots products (Hit It Rich!, Duck Dynasty Slots, etc) and Zynga Poker, as well as licensing IP for Hit It Rich!. As a profit-oriented executive and creative consumer behavior expert with an entrepreneurial spirit, I bring to the table a proven track record spanning over 2 decades in taking companies to breakthrough financial, market, and operational success.

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